Facilities planning – Location

Site selection is an important activity which decides the fate of the business. A good location may, reduce the cost of production and distribution to a considerable extent. The reduction of cost of production and distribution helps in elevating either the competitive strength or the profit margin of the business.

Locating a business involves a large, relatively permanent investment. If the site selection is not proper, all the money spent on factory building, machinery, and their installation will go in waste and the owner has to suffer to great loss. Therefore, the site for the factory should be selected very carefully. While selecting a site, it is necessary to consider technical, commercial and financial aspects and then the select a site that may provide maximum advantages.

The need for selecting a suitable site or location to house the factory may arise in the following situations:

1. While starting a new factory.
2. During the expansion of the existing plant.
3. When the existing plant is to be re-located at some other place, to remove the drawbacks of the present location or to gain the benefits of a still better location.

The Problem of Location

The problem of site selection of a factory can be solved in the following three stages:

1. Selection of the region.
2. Selection of the locality.
3. Selection of actual site.

Selection of the Region

Generally, the geographical area is divided on the basis of natural regions or political boundaries within the nation. The suitability of various regions is considered on the basis of comparative cost advantages available out of the possible regions.

Selection of the locality

After selecting the region, the specific locality within the region is considered. Generally, the following alternatives are open in selecting the locality:

(a) Urban area
(b) Rural area.
(c) Suburban area in the vicinity of the urban area. The comparative advantages of each locality are considered at this stage.

Selection of the Site

While selecting the site, the type of development of land, cost of leveling etc., possibility of plant expansions, and other infrastructure facilities like transport, banking power, communication, postal facilities etc are considered.

Factors Affecting Size of the firm

The size of firms is usually dependent on the following factors,

Availability of Capital: Every firm needs capital. Only large capital investment is made or small capital investment is made. The need of capital depends on size, type and nature of the firm. Industries which require large capital investment e.g. sugar refining, tend towards large scale. But business units requiring small capital and more labor and a few tools and machines can be started on a small scale.

Entrepreneurial Ability and Efficiency: The ability, experiences and managerial efficiency of the entrepreneur is one of the important factors that determine the size of the business unit. As the firm continues to expand, the task of organization and co-ordination become more difficult. The inability of the entrepreneur to successfully co-ordinate and supervise a large unit is a factor that may check the expansion of the firm.

Risk of Uncertainties: Risks of changes in demand have their impact on the trends in the size of the firms. Firms have to face fluctuations in demand for their products and accordingly adjust their policies and strategies in order to survive and maintain the position in the market. The firms should have the necessary the necessary strength to absorb the shocks of fluctuations in demand and they should be flexible enough to adapt to new trends in demand.